“The shroud of secrecy at the Federal Reserve needs to come to an end,” Wilson declared.
“The lack of transparency at the Federal Reserve helped to contribute to the financial crisis. If markets had more reliable information regarding the nation’s monetary policy, including which firms are dependent on Federal Reserve subsidies, systemic risk within the system could be identified by markets, instead of kept under a shroud of secrecy as under the current system,” Wilson explained.
Wilsons said that the Federal Reserve was “one of the principal actors” that caused the financial crisis: “By keeping interest rates too low for too long, the Fed accommodated the inflation of the housing bubble throughout the 1990’s and 2000’s by pumping easy money into the system.”
Wilson cited research by Stanford economist John Taylor who in a recent Wall Street Journal column wrote, “the Fed’s target for the federal-funds interest rate was well below what the Taylor rule would call for in 2002-2005. By this measure the interest rate was too low for too long, reducing borrowing costs and accelerating the housing boom. The deviation from the Taylor rule, which had characterized good monetary policy during the previous two decades, was the largest since the turbulent 1970s.”
Wilson said the Sanders amendment, despite objections raised, was limited in terms of the impact it would have on the exercise of monetary policy. “The Dodd bill does nothing to rein in the Fed’s ability to manipulate markets, and neither would the Sanders amendment,” Wilson said.
Wilson clarified, “What it would do is give Congress and the American people a means to ascertain the full scope of the Fed’s role in market interventions prior to and throughout the crisis.”
Wilson said that as the capital the Fed provided through the banking system helped to create the housing bubble and “disproportionately contributed the rise of the nation’s money supply.” In 1990, outstanding mortgage debt held was $3.805 trillion. By the end of 2007, total mortgage holdings had risen to $14.568 trillion, a monumental 282 percent jump of $10.763 trillion in new mortgages. During that same period, according to the True Money Supply index from the Ludwig Von Mises Institute, the money supply rose from about $1.787 trillion at the end of 1990 to about $5.268 trillion by the end of 2007, an 195 percent increase of $3.481 trillion.
In addition, Wilson said the Federal Reserve’s role since the crisis began in 2007 is “very unclear.”
According to Bloomberg News, the Federal Reserve had committed over $7.76 trillion for the bailout. However, it is unclear who received loans from the Federal Reserve, or who will receive the remainder of the committed funds.
Wilson explained, “Nobody can account for about $2 trillion of loans made by the Fed. The reason is because the Fed has consistently stonewalled the press, Congress, and even courts of law. And because law exempts most of the institution from being audited by the GAO.”
Wilson cited that the Government Accounting Office, according to 31 USCA §714(b), cannot audit and exempts from public oversight the following activities of the Federal Reserve:
(1) transactions for or with a foreign central bank, government of a foreign country, or nonprivate international financing organization;
(2) deliberations, decisions, or actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, open market operations;
(3) transactions made under the direction of the Federal Open Market Committee; or
(4) a part of a discussion or communication among or between members of the Board of Governors and officers and employees of the Federal Reserve System related to items.
According to Bloomberg, “The Federal Reserve so far is refusing to disclose loan recipients or reveal the collateral they are taking in return.” The Fed has argued it is actually allowed to withhold “internal” memos as well as commercial and trade secrets information. Bloomberg, on the other hand, has actively filed a Freedom of Information Act (FOIA) request, demanding the information.
Thus far, the Fed’s Board of Governors has refused to comply with Bloomberg’s FOIA requests, despite a court ruling in Bloomberg’s favor. The Fed’s regional Reserve Banks have argued that they are private institutions beyond the reach of the Freedom of Information Act.
The Southern District Court of New York has ordered that the Federal Reserve Board of Governors comply with Bloomberg News’ Freedom of Information Act (FOIA) request to produce the details of some $2 trillion in emergency loans that were made. This includes who received the $2 trillion of loans, the terms under which they were received, and what collateral was taken by the Reserve branches in exchange for the loans.
The Federal Reserve is appealing this ruling, and has thus far refused to comply.
In answering questions from Congressman Alan Grayson (D-FL) last year, Fed Inspector General Elizabeth Coleman testified she could not account for “$1 trillion-plus that the Fed extended and put on its balance sheet since last September…”
An email to Bloomberg by Coleman’s office also revealed that “By law, we are the Office of Inspector General for the Board of Governors only… Consistent with our authority, we cannot conduct a direct audit of Reserve Bank operations.”
Wilson concluded, “The American people have a right to know just what has gone wrong with the nation’s monetary policy, how it contributed to the financial crisis, and what the true extent of the Fed’s relationship with financial institutions, foreign banks, and foreign central banks really is.”
Sanders Amendment to the Dodd Bill, SA 3738, sponsored by Senator Bernie Sanders, and cosponsored by Senators Russ Feingold, Jim DeMint, Patrick Leahy, John McCain, Ron Wyden, Chuck Grassley, Byron Dorgan, David Vitter, Barbara Boxer, Sam Brownback, James Risch, Roger Wicker, Lindsay Graham, Orrin Hatch, Mike Crapo, Robert Bennett, and Jim Bunning.
Interview Availability: Please contact Rebekah Rast at (703)383-0880 or at firstname.lastname@example.org to arrange an interview with ALG President Bill Wilson.